AUD/USD Weekly Fundamental Analysis, August 10 – August 14, 2015 Forecast

Weekly Analysis and Recommendation:  Technical and fundamental factors helped drive the AUD/USD higher last week. Oversold technical factors and a potentially bullish chart pattern contributed to the rally.

A stumbling Australian economy had most traders convinced the bottom was about to fall out of the market. However, the price action the past two weeks and comments from the Reserve Bank suggest that some investors are starting to think the recent surge in short selling may have gone too far.

According to the U.S. Commodity Futures Trading Commission’s official U.S. futures market data, asset managers and hedge funds last week held the biggest number of net short positions on the Australian Dollar since August 2013, a total of 85,614 positions.

The gloomy outlook for the economy was due to the end of a decade long mining-investment boom. Falling commodity prices and the slowing economy in China, Australia’s biggest trading partner, were also to blame for the rapid descent of the Aussie Dollar.

Despite the bearish outlook, the AUD/USD rebounded quickly on Tuesday, August 4 after short-sellers were caught off guard when the Reserve Bank of Australia refrained from a rate hike and offered guidance suggesting that it seemed satisfied with the current price level of the currency.

Friday’s U.S. Non-Farm Payrolls report failed to put an end to the short-covering. The 215,000 jobs added to the economy in July were below the consensus but within the range of estimates. Although most investors remain certain a Fed rate hike will eventually put a cap on the rally, until there is clarity about the timing of the first rate hike since 2006, the Australian Dollar may appreciate against the U.S. Dollar over the near-term.

After the jobs report, speculators increased bets for a September rate hike from 47% to 55%. They are, however, 100% certain that a rate hike will take place by December. Given the huge number of shorts in the market and the uncertainty over the timing of the rate hike, the current position-squaring rally could continue until there is more evidence supporting an early rate hike. This evidence includes this week’s retail sales report and the consumer inflation report later in the month.

Monday could be a volatile session because FOMC Members Fischer and Lockhart are scheduled to speak. They are likely to give their opinion on the timing of the rate hike and this could trigger a strong reaction by investors.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports. 

Important Reports to Watch this Week: 

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